Today, more and more seniors are finding love. The average life expectancy in the U.S. today is around 78 years, up from 70 in 1960, according to the National Center for Health Statistics, which means people are living longer, healthier lives than ever before. This means more people are rediscovering love later in life.
Rediscovering love should be exciting, romantic and fulfilling yet it also can create many legal and financial problems on how money will be handled by a senior entering into a new relationship. Marriage at any age means a marriage of finances. These finances become significantly more complicated when one or both of the parties are contemplating a second or third marriage with adult children, assets, a house, a retirement account, pension, and perhaps failing health.
Each party in the relationship needs to understand the financial and legal implications that marriage will have on Social Security benefits, retirement plans, liability for each others' long-term care costs, and who will receive their property when they pass away. Whatever you decide to do, you need to consult a lawyer before you say I do. Here are some considerations:
Estate Planning.
Getting married can have a big effect on who receives your property when you pass away. Even if you don't include a new spouse in your will, in most states spouses are automatically entitled to a share of your estate (usually one-third to one-half). One way to limit a spouse from taking his or her elective share is to enter into a prenuptial agreement in which both spouses agree not to take anything from the other's estate.
If you want to leave something to your spouse and ensure your children or grandchildren receive an inheritance, a trust may be the best option. For example, a couple can stipulate in a trust agreement that at the husband's death his wife can use some of his assets to live on. After her death, the trust is terminated and the remaining assets pass to the husband's children.
Prenuptial Agreement.
Typically, when two people marry, their first obligation is to take care of their spouse, but that's not necessarily the priority for couples getting married later in life. Most seniors with disposable income want to leave at least some of their assets to their children and grandchildren. A prenuptial agreement allows a couple to identify which assets belong to whom during their marriage, as well as in the event of a divorce, and to direct who gets what at death.
What happens without a prenuptial? While the laws are specific to each state, most states require a portion of the deceased spouse's estate pass to the surviving spouse. Generally, a spouse is entitled to about one-third to one-half of the estate, called the "elective share." There are also Exempt Property and Family Allowance provisions. So if you leave your spouse less than what state law mandates as a minimum elective share, the spouse can elect against the will and receive a portion of your estate. A valid, well drafted prenuptial agreement allows the parties to override the "elective share" rule and direct how much, if any, the surviving spouse receives.
It's important to note that a prenuptial is not an estate-planning tool, and does not necessarily take precedence over a will or trust. It is an enforceable contract that can be crucial when it comes time to distribute assets once a spouse dies.
Nursing Home Costs.
It is important to know that Medicaid agencies do not care if you have a prenuptial agreement. Getting married may prevent one spouse from qualifying for Medicaid eligibility to help pay for nursing home costs and expose the well spouse's assets to nursing home expenses. Your prenuptial agreement should still address paying for the cost of a nursing home for one spouse. If you qualify, a long-term care insurance policy may be a good investment to help address this problem.
The Family Home.
A family home is a sensitive issue that can cause problems for spouses as well as their children. Whether you are getting married or just living together, before combining households you need to think about what will happen to the house once the owner dies. If the owner wants to keep the house within his or her family, putting the house in both spouse's names is not an option. On the other hand, the owner may not want his or her children to evict the surviving spouse once the owner dies. The better solution is for the owner to put the house in a trust for the benefit of the surviving spouse.
Social Security.
Many divorced or widowed seniors receive Social Security from their former spouses, and remarriage can affect these benefits. If you are divorced after at least 10 years of marriage, you can collect retirement benefits on your former spouse's Social Security record if you are at least age 62 and if your former spouse is entitled to or receiving benefits. If you remarry, you generally cannot collect benefits on your former spouse's record unless your later marriage ends (whether by death, divorce, or annulment). However, if you are a widow, widower or surviving divorced spouse who remarries after age 60, you are entitled to benefits on your prior deceased spouse's Social Security earnings record.
Alimony.
If you are receiving alimony from a divorced spouse, it will likely end once you remarry. Depending on the laws in your state and your divorce settlement, alimony may end even if you simply live with someone else.
Survivor's Annuities.
Widows and widowers of public employees, such as police officers and firefighters, often receive survivor's annuities. Many of these annuities end if the surviving spouse remarries. In addition widows and widowers of military personnel may lose their annuities if they remarry before age 57. Before getting married, check your annuity policy to see what the affect will be.
Retirement Plans.
There are also rules that give specific rights to a spouse of an owner of a qualified retirement plan such as 401(k). In the case of either a lifetime or death distribution, the plan's participant's spouse must receive the participant's plan's benefit. A plan must provide that, absent an election by the participant and the consent of a participant's spouse, a lifetime payment must be made in the form of a joint and survivor annuity.
In addition, a retirement plan must provide that, absent an election by the participant and the consent of a participant's spouse, if a participant is vested in any portion in the participant's plan's benefit and dies before payments begin, the payment must be in the form of a pre-retirement survivor annuity. Neither provision applies if the plan provides that the participant was not married to the participant's spouse for at least one year prior to the distribution event.
Conclusion.
It is critical for each party to understand the financial and legal implications of getting married. A prenuptial agreement and trust are often a critical part of the plan. Each party needs to see their own attorney and the first step begins with a conference.
